The Afterpay Ltd (ASX: APT) share price is rising today after the buy now, pay later business received a big takeover offer.
Takeover offer from Square
Square has proposed to acquire Afterpay in a deal that implies a value of $39 billion for the buy now, pay later business.
Afterpay said the acquisition aims to enable the companies to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.
Square expects to pay Afterpay shareholders in new shares. Under the terms, which have been agreed by both sets of boards, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square for each Afterpay share they own.
Based on Square’s last closing price of US$247.26 on 30 July 2021, this represents an implied transaction price of $126.21 per Afterpay share, being a premium of 30.6% to the last Afterpay share price.
The co-founder and CEO of Square, Jack Dorsey, gave some insight into the thinking behind the deal:
Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles.
Together, we can better connect our cash app and seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.
The Afterpay share price is up 23.6% after this offer to $119.50.
Afterpay’s trading update
That wasn’t the only important news out of the company today.
It also announced its FY21 trading update.
Total underlying sales increased 90% to $21.1 billion. That included $9.8 billion of North American underlying sales (up 148%), $9.4 billion of ANZ underlying sales (up 44%) and $1.8 billion of Clearpay – UK and EU – underlying sales (up 227%).
Group revenue increased 78% to $925 million and merchant revenue rose 90% to $822 million.
Afterpay’s gross profit went up 75% to $675 million.
Active merchants grew 77% to 98,200. Total active customers went up 63% to 16.2 million, but whilst North American active customers rose 88% to 10.5 million, ANZ customers only increased by 8% to 3.6 million.
Its merchant revenue margin was in line what it achieved in FY20. Gross losses remained “low” and are expected to be below 1% as percentage of underlying sales for FY21 and broadly in line with FY20.
The net transaction margin for FY21 is expected to be above 2%. But, the FY21 second half declined moderately from the first half predominately driven by a higher contribution from international markets during the period.
What is the outlook for the Afterpay share price?
With the Afterpay share price at $119.50, there is still a 5.6% gap between the current price and the implied value of the offer.
The takeover is not guaranteed to go through at this stage. There are still a number of stages that need to happen for Afterpay to be taken over.